Ideas and strategies for a sustainable world

CA Energy Bills Part 2: SB32

SB32 – “FIT-like” extension

The quick way to think about SB32 is that it expands and does a little fixing to the existing FIT-like program in California. Despite what many reporters are saying, this is not a new FIT for California. California has had a FIT-like program since early 2008, starting with AB1969. That program is limited to projects up to 1.5MW and has failed mainly because the price you are paid for the electricity you produce is too low to make investment worthwhile. Despite a goal of deploying 500 MW of renewable energy, the program has resulted in about 10MW of biogas projects.

The program is FIT-like because it sets a fixed rate for energy over a long-term contract (10, 15 or 20 years) and directs utilities to create a standard contract for everyone in this program rather than having each developer negotiate a new contract for each project.

SB32 made improvements to this program in several ways, including:

The price set by the CPUC can now include the value of avoiding environmental impacts (e.g. GHG emissions).

The price may also include the value of “locational benefits” which can mean several things depending on how the CPUC interprets the bill. At a minimum, it is expected that this will include the extra value of energy produced on distributions circuits that need help with peak demand.

Projects can be up to 3 MW: better economies of scale could help make investment viable
The program applies to all utilities, not just the big Investor Owned Utilities (IOUs)

The primary distinction between this SB32-expanded program and the German-style FIT is the pricing. The California program starts with what’s called the Market-Price-Referent, and estimate of how much the energy is worth to consumers based on what they would have paid for a 500 MW gas-fired power plant. This is called “value-based” pricing. SB32 allows other elements to be added to the MPR whereas the existing program is limited to just MPR.

German-style FITs calculate price based on “cost plus reasonable profit”. First, you estimate the cost of developing and operating a solar farm for example. Then you consider a reasonable ROI, such as 7%. Then, based on how much energy the farm will produce over the life of the contract, you set a rate that the utilities pay per Kilowatt-hour to provide that reasonable ROI.

Bottom line is that we don’t know whether the SB32 changes will result in more renewable energy development because we don’t know what the price will be. The most successful programs in countries around the world use the German-style cost-based approach.

However, the FIT Coalition decided to support SB32 because it represented some real progress this year. The non-price related improvements were good steps towards a successful FIT and we welcomed those.

You can read our letter to supporters and to the Governor on SB32 here. We’re happy that SB32 was signed but we’ll be gearing up full force to get AB1106, an even better FIT, passed in early 2010.

To learn more about FIT’s in general, visit the FIT Coalition at www.fitcoalition.com and join our mailing list for regular updates.